Generational Accounting, Solidarity and Pension Losses |
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Authors: | Coen N Teulings Casper G De Vries |
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Institution: | (1) SEO/Tinbergen Institute, Roeterstraat 29, 1018WB Amsterdam, the Netherlands;(2) Dept. of Economics, Erasmus Universiteit Rotterdam/Tinbergen Institute, PO Box 1738, 3000 DR Rotterdam, the Netherlands |
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Abstract: | Summary The stock market collapse led to political tensions between generations due to the fuzzy definition of the property rights
over the pension funds’ wealth. The problem is best resolved by the introduction of generational accounts. Modern consumption and portfolio theory shows that the younger generations should have the higher equity exposure due to
their human capital. Stock market losses should be distributed smoothly over lifetime consumption by adjusting both current
contributions and future entitlements. We present expressions for the substantial welfare losses involved in various practically
relevant deviations from the optimal system.
We are grateful to stimulating suggestions by Lans Bovenberg, Casper van Ewijk, Frank de Jong and by two anonymous referees. |
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Keywords: | Pension funds generational accounts portfolio choice Life cycle Models |
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